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MXI Corp and Multilevel Marketing: Pyramid Schemes By Any Other Name Would Smell Like Chocolate

If a friend or colleague (or your hairdresser) has ever tried to sell you products from Herbalife, Avon or Amway, that person has also likely tried to recruit you to become a distributor yourself. As Max Ehrenfreund explains in the Washington Post, that friend, colleague or hairdresser is currently operating within a multilevel marketing (MLM) business model.

In his article, Ehrenfreund tells the story of a New Mexico couple whose lives unraveled when they became distributors for MXI Corp., an MLM company that moves chocolate products, and bit off way more than they could chew.

What's the Big Idea?

Sad stories of broke MLM sellers are a dime a dozen, often telling of wide-eyed wannabe entrepreneurs who became consumed by their products and failed in their Sisyphian quest to turn a profit. Companies that employ multilevel marketing often rely on manipulative methods in order to recruit their sellers. These tactics contribute to accusations that the companies are pyramid schemes in disguise.

A traditional pyramid scheme involves people paying to join an organization and then getting kickbacks for every person they recruit. The business model is mathematically unsustainable and thus is illegal in the United States, among other countries. Allow Michael Scott to fully explain the concept:

"Most of their customers are salespeople who also buy products for themselves... The industry's defenders point to these customers as evidence that the companies are filling a demand in the market. In surveys commissioned by the trade association, more than half of distributors identify discounts on products as a reason they joined the ranks of multilevel marketers."

Despite those claims, the number of success stories involving regular folks who became distributors are very, very few. You can chalk it up to "a fool and his money will soon part," but protections ought to be put in place to ensure those susceptible to the marketing pitch don't throw their lives away.

The next time a friend of yours tries to goad you into selling analeptic chocolates or legal insurance -- just run, don't walk.